How to repair finances after a foreclosure

Cash, credit and income are key to becoming a homeowner again after a foreclosure, short sale or deed surrendered under threat of foreclosure.

Figures from DataQuick and CoreLogic show that more than 33,000 Orange County households now potentially could qualify for a Federal Housing Administration loan because it's been three years since their short sale or foreclosure.

But local observers say the number of potential "boomerang buyers" who have repaired their cash and credit still is low.

It can take years to rebuild your credit and save for a down payment. Aspiring homebuyers need to start the process early.

•Pay your bills: If you're behind on credit card bills, car payments or other debts, get accounts up to date as soon as possible and keep paying your bills on time.

Bad credit is like a teaspoon of salt in a glass of water, Lohrenz said. If you keep adding clean water little by little, over time, that water will be drinkable again.

"The more positive things you add after (a foreclosure or short sale), the less it's going to weigh on your credit," she said.

•Save for a down payment: Because it's tougher to get a home loan now, a down payment is required. The bigger your down payment, the shorter your waiting period for loan qualification.

Be creative, Lohrenz said. Move in with family or friends and put that rent check into savings. Or take in a room-mate to help pay the rent.

People who put household possessions in mini-storage units need to sell those belongings – both to get a little more cash and to eliminate monthly storage costs.

Another option: Consider part-time work or moonlighting on the side, taking care not to fall prey to work-at-home scams.

•Be realistic: Decide if owning a home is a realistic goal, especially in Orange County, which has Southern California's highest median home price. In January, the median home price – or the price at the midpoint of all sales – was $460,000 in the county.

If you're determined to buy, scale back your plans and make sure to buy something you can afford. Don't borrow the maximum amount lenders will consider giving you.

"A lot of people bought more home than they could afford," Lohrenz said. "Buy something that's (financially) comfortable."

•Take a class: The Consumer Credit Counseling Service offers "Homebuyers Orientation 101," a free 2 ½-hour workshop for people who are just beginning the process and still need to pay down debts, fix their credit and save for a down payment.

Classes are offered in Santa Ana, Irvine and throughout Orange County. The next course is planned for 9 a.m. March 16 at the Rancho Senior Center in Irvine. For more information call 714-547-2227 or visit cccsoc.org.

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